London close: Stocks plummet as bond yields rise

29th May 2013 16:38

Financial markets erased yesterday's impressive gains on Wednesday as renewed concerns about the global economy hammered sentiment in London."In an almost complete reversal of yesterday's price action the bears have reasserted themselves today, overturning the brief return to optimism as European equity markets slide back sharply on the back of rising bond yields," said Senior Market Analyst Michael Hewson from CMC Markets. Following mixed remarks from Federal Reserve Chairman Ben Bernanke last week, markets are now beginning to contemplate that the US central bank could soon start to scale back its stimulus measures. Combined with the much better-than-expected economic data of the last few days - both US home-price figures and consumer-confidence data smashed forecasts - yields on 10-year US Treasuries surged to a 13-month high of 2.23% last night."Instead of the usual 'risk on-risk off' scenario, we've become used to, now we have to contend with the new 'taper on-taper off' scenario which is likely to dominate market sentiment until the next Fed meeting on June 18th and 19th, and even possibly beyond that," Hewson said.While US bond yields were more or less flat today, they stand much higher than they did at the end of last month (1.6%). With rates on government bonds across Europe also edging higher today, demand has been dampened for defensive stocks in London such as utilities, which have performed well so far this year. Traders tend to be attracted utilities given their typically higher dividends, so these stocks bore the brunt of the sell-off today as yield-hunters looked elsewhere.Growth concerns hit stocksThe OECD reduced its global growth estimate for 2013 from 3.4% to 3.1%. The Organisation also slashed the UK's growth forecast from 0.9% to 0.8% and now forecasts a steeper contraction in the Eurozone (-0.6% from -0.1% previously).Meanwhile, the International Monetary Fund (IMF) slashed its 2013 economic growth forecasts for China from 8.0% to 7.75%, citing weak global demand.Also dampening sentiment this morning was unemployment in Germany which rose by more than four times analysts' estimates in May. The number people who exited the workforce in May rose by 21,000, compared to the loss of 5,000 jobs that the consensus had expected.FTSE 100: Utilities drop as yield-hunters turn to US debtThe utilities sectors, which have put in an impressive performance in 2013 so far, were firmly out of favour today, moving in the opposite direction to US bond yields which have surged over the last couple of days. Rising US yields tend to make high-yielding utility stocks less attractive, prompting sharp falls in the share prices of National Grid, Centrica, SSE and United Utilities.Heavyweights Amec and Marks & Spencer were also providing a drag after going ex-dividend this morning, meaning that new investors won't have the chance to tap into their latest payouts.Smiths Group, the global technology firm, was another heavy faller after Deutsche Bank downgraded the stock to 'hold', leaving its 1,400p target price unchanged.Oil and gas firm BG Group was lower on rumours of a £80bn break-up bid from a number of potential bidders including Shell, Exxon Mobil, Petrobas and Reliance Group.Resource stocks ENRC, Fresnillo and Petrofac held up relatively well despite concerns over growth in China, a huge importer of commodities. FTSE 250: Gold miners riseGold miners were tracking the yellow metal higher today, as the price rose for the first time in three sessions. African Barrick Gold, Petropavlovsk and Centamin all finished with decent gains.De La Rue, which makes banknotes, was heading the other way after seeing sales fall 8.0% to £484m in the year to March 30th, worse than the £509m forecast. The company nevertheless retained its operating profit guidance for £100m for the fiscal year ending March 2014.Defence and security group Cobham was also lower despite winning a AUD$85m five-year contract extension in Papua New Guinea for its Fly-in Fly-out (FIFO) aviation services to transport workers to remote mines.FTSE 100 - RisersEurasian Natural Resources Corp. (ENRC) 251.40p +1.37%Fresnillo (FRES) 1,089.00p +0.55%Petrofac Ltd. (PFC) 1,390.00p +0.07%FTSE 100 - FallersNational Grid (NG.) 797.00p -5.06%United Utilities Group (UU.) 755.00p -4.07%Aberdeen Asset Management (ADN) 472.60p -3.96%SSE (SSE) 1,569.00p -3.62%Centrica (CNA) 378.60p -3.59%Hargreaves Lansdown (HL.) 975.00p -3.56%Associated British Foods (ABF) 1,874.00p -3.55%WPP (WPP) 1,148.00p -3.53%International Consolidated Airlines Group SA (CDI) (IAG) 274.00p -3.45%William Hill (WMH) 433.40p -3.26%FTSE 250 - RisersAfrican Barrick Gold (ABG) 138.50p +6.37%Brewin Dolphin Holdings (BRW) 230.30p +4.78%Bank of Georgia Holdings (BGEO) 1,892.00p +3.39%Petra Diamonds Ltd.(DI) (PDL) 109.50p +2.91%Petropavlovsk (POG) 129.80p +2.37%Lonmin (LMI) 271.00p +2.30%Rank Group (RNK) 150.00p +2.04%Telecom Plus (TEP) 1,310.00p +2.02%Kentz Corporation Ltd. (KENZ) 407.20p +1.77%Perform Group (PER) 559.50p +1.36%FTSE 250 - FallersInternational Personal Finance (IPF) 517.00p -6.85%Marston's (MARS) 143.60p -5.90%FirstGroup (FGP) 118.00p -4.99%Premier Farnell (PFL) 215.60p -4.14%De La Rue (DLAR) 946.00p -4.06%3i Group (III) 343.10p -3.92%Greene King (GNK) 755.50p -3.82%Intermediate Capital Group (ICP) 475.40p -3.80%Filtrona PLC (FLTR) 712.00p -3.78%Catlin Group Ltd. (CGL) 511.00p -3.58%